Now THIS is turning out to be some show, folks. Since I am an outsider, I am not blessed with access to all the "Right Facts" so I am forced to uncover them on my own, without preconception or interference. Mostly, I do this by doing what few people seem to be interested in doing - by carefully reading SEC filings and exhibits.

When I read American Realty Capital Trust Inc.'s SEC filings, they clearly state the following:

"In accordance with the asset management agreement, $6.3 million and $4.4 million was prepaid to the Advisor as of March 31, 2011 and December 31, 2010, respectively".

Those filings also state that the external advisor, American Realty Capital Advisors, subsequently waived a portion of these prepaid fees. However, the filings do not clearly state where that $10.7 million is now, or whether the waived fees were actually refunded to the REIT. In a nutshell, assuming all this is true, it should go something like this: (1) Fees Prepaid. (2) Fees Waived. (3) Waived Fees Refunded to REIT. You know, it's the good old "cash in, cash out" concept.

Only the filings that I read don't clearly reflect step number 3, [url=http://www.reitwrecks.com/forum/viewtopic.php?f=24&t=210]and there is some question about where the cash is[/url]. Now, somebody from FactRight LLC has suddenly appeared on the scene, and they are dressed up like Leslie Neilsen:

Of course, I don't know anyone at FactRight, and I'm sure they're all perfectly great people, but FactRight's email to broker/dealers and reps this week seemed to indicate some reluctance to get to the bottom of things. Sadly, just as Moody's and S&P were paid well by bankers to rate the banks' own subprime mortgage deals in 2007, firms like FactRight are also paid well by sponsors to "rate" the sponsors' own REIT deals now:

FactRight LLC wrote:Over the past few weeks, FactRight received numerous calls from broker dealers and registered representatives who received a copy of a letter questioning certain practices adopted by American Realty Capital Trust, Inc. and its advisor. The issues raised in the letter have since become the subject of a blog posting on REITWrecks. Unsubstantiated negative press impacts everyone by raising doubts as to the integrity of our industry. I find it counterproductive to growth, building investor confidence and avoiding unnecessary regulatory oversight, not to mention the time and energy spent by many to run these rumors down."

So, when I read [url=http://www.reitwrecks.com/forum/docs/FactRight_+ARCT+Response+Letter_FINAL.pdf]FactRight's ARCT memo[/url] this afternoon, the dismissive tone of their email caused a certain degree of open-minded skepticism on my part. Unfortunately, after a thorough read, I found the memo to be singularly successful in raising more questions than it answered, and more notable for what it didn't say then what it did say. And naturally, it wasn't long before I stubbed my toe on this strangely worded bit barely three pages in:

FactRight LLC wrote:If ARCT recorded the waived fees as expenses, it would not conform to GAAP. Since it does not, ARCT is following the proper accounting rules."

This statement is pretty ridiculous, particularly given the mini-firestorm that these questions appear to have ignited, and it simply ignores the heart of the controversy: Since ARCT is obviously not reporting the waived fees as expenses, which would not conform to GAAP, then how is ARCT reporting the waived fees??

My strong suspicion is that ARCT is accounting for the "waived" fees using an asset account on the balance sheet, which WOULD conform to GAAP, but WOULD NOT reflect the true finality of the commercial arrangements being reported to shareholders. If FactRight can't be bothered to ask obvious questions like this, it's sort of hard to take the memo seriously, never mind place any value in its utility (I like to surf too, but they even managed to misspell the word "waived".)

Once again, if that ARCT fee waiver is indeed permanent, then the cash associated with the fee waiver needs to be more than just "available to pay distributions to our stockholders," which FactRight obediently regurgitated in its memo (straight from page 43 of ARCT’s first quarter 10-Q). Maybe it's just me, but this looks like a fairly crafty use of the word "available," especially when combined with the lack of specificity on the accounting that is being employed to reflect the waived fees, and the fact that nobody has yet said anything about where the actual cash is.

In the spirit of getting the facts right, the filing you quote about prepaid asset management fees quotes cumulative fees, not additive. Your commentary below the quote implies that $10.7 million of fees is under discussion when the fact is that the number is $6.6 million. Just wanted to make sure we stick to the facts and carefully read what the sec filings clearly state.

All non-traded REIT investments are best treated as "guilty until proven innocent".

If you do some research on this REIT (and this is true of most all of the NT REITs out there), you will find that there are excessive and up-front fees paid to promote and distribute the investment. Approximately 12% of your initial investment is immediately vaporized by these fees. Then, on an ongoing basis, you have pretty rich fees being paid to the advisory company that manages the REIT (although in this case some of these fees have been temporarily waived). The principals of this advisory company have essentially no equity invested alongside the investors in the REIT. This kind of structure leads to some perverse incentives - management just wants to put money to work, almost irrespective of what they pay for stuff.

This particular REIT has essentially the same business model as the Cole Capital REITs (which were the top fundraisers in the market, but American Capital is apparently the new industry darling)- it invests in triple-net leases, primarily of retailers. If you ever wondered why Walgreens and CVS insist on building stores on every other corner, it is REITs like this that are the reason. They provide "dumb money" to the industry to finance projects that couldn't go without the cheap financing provided by sale-leaseback transactions. This REIT doesn't purport to have a distressed or value-added strategy. They just buy stuff and put it in the portfolio. The first 2 Cole REITs have had to cut their dividend and, even though they are now fully or almost fully invested (and are "seasoned"), they are not covering their distributions with cash flow from operations (and have either suspended or restricted share redemption). This is a critical issue and will mean that they may need to cut dividends further in the future, or at least continue to add debt to pay distributions until they bump up against limits.

There are plenty of other places to put your money out there - why light 12%+ of your investment on fire, get locked into a "roach-motel" structure that provides very limited liquidity and have a tremendous amount of opacity in how exactly you are going to get your money back? There is a reason that the only investors who buy these products are retail and that the only people pushing this are brokers paid on commission or people who are referring people to brokers paid on commission (see Lucia, Ray).

Although I agree that you should do your due diligence before buying a public, non-traded REIT, like before buying ANY investment, I totally disagree with many if not most, of what REIT wrecks says about ARCT. There are a few non-traded reits that do what they do very well. American Realty Capital Trust, & Realty Capital Securities, who is their distributor, is one of them. They said they would cover their dividend, they have. In fact, they even raised it & paid out special dividends along the way. I have money in this REIT. I've been in it for 18 months. I paid $10 per share, and I'm confident ARCT will sell this REIT for more than $10 per share, & I have made a cumulative return on my investment of approximately 10.5%, paid in the form of a monthly dividend payment deposited into my checking account every month like clockwork, 18 months in a row. How have your stock investments done over the last two weeks? My REIT position in ARCT in my Fidelity account....get this....didn't fluctuate AT ALL in price over the last two weeks. Pretty sure the S&P is DOWN something like 20% over the last 2 weeks. Hmm...oh, & I got another dividend last week. What is REIT wrecks going to say about ARCT when they sell it, and they will sell it, for let's say, $11 per share 6-12 months from now? That would put me at a total ROI for my investment in this horrible investment at around 24% in 3 years. The S&P has returned ZERO over the last 10 years. How is that a bad thing??? This REIT wrecks guy will bash any REIT that is non traded, & doesn't realize that we investors can sometimes think for ourselves. I don't care what percentage is skimmed off the top of the money I put into their REIT, as long as they pay me my dividend, they keeps fees reasonable, and they get me a positive return with semi-favorable tax treatment.

And I just said all that knowing that the ARCT REIT is now closed to new investments. So I hope you invested. It's a rare jewel in the sometimes problematic world of public non-traded reits.

*ARCT fully covers it's dividend * has 100% occupancy * only buys great locations (from my research of EACH of their several hundred properties) * only buys directly from investment grade type corporate owners (does not buy from franchisees) * pays a 7% dividend paid monthly * has a very experienced management team * buys most properties below replacement value (I would challenge REIT wrecks non-chalant, wordy approach to "underwater" debt/values on arcp, Inc ipo offering also. They own those 62 bank branches BELOW replacement value...I read the ENTIRE prospectus, and asked pointed questions directly to the CEO & COO in person) * have bought over a billion $'s worth of properties in ARCT without a default or any other major problem * they hired Goldman Sachs to help them sell it (Goldman as we all know can sell ANYTHING to anyone) * they bought pharmacies, restaurants like ihop, car repair places, bank branches, etc., which people are always going to frequent, even in a down market or economy * and they've done all this with great cap rates and at great prices given the economy today.

Oh, what kind of shady, poor investment, returns $40,000,000 to clients because they said they were closing the fund to new investments like ARCT did in July 2011? That $40M came in after the deadline, & they sent it back. Piece of crap reits do bogus "follow-ons" to suck in even more cash & to keep collecting their multi-million dollar paychecks off of the management & acquisition fees. ARCT did exactly what my advisor & Schorsch & co told me they were going to do. They closed it so they could keep it small & nimble, and be more likely to sell it sooner for a better price to more potential buyers.

I'll keep laughing all the way to the bank REIT Wrecks, then I'll keep laughing when they sell it and I make another 10-20%. Thank you very much. They're the ONLY REIT I'd buy on this entire board in the triple net commercial, non-medical space. They know what they are doing & I trust them with my money.

Maybe they used the $6.6M to pay off the loan on the HOUSE they purchased in the Cayman Island, which is used to entertain financial advisors.... Does this smell a bit like Fidelity back in the 90's?? It's evident that they're taking advancements from one REIT to help support the lack of O&O that their other 30 REITs aren't producing due to their inability to raise capital in a multi-product platform.

OJVCC wrote:Maybe they used the $6.6M to pay off the loan on the HOUSE they purchased in the Cayman Island, which is used to entertain financial advisors.... Does this smell a bit like Fidelity back in the 90's?? It's evident that they're taking advancements from one REIT to help support the lack of O&O that their other 30 REITs aren't producing due to their inability to raise capital in a multi-product platform.

With that kind of logic, you should feel the same way about JPM (Jami Dimon), BofA (Brian Moynihan), Pershing (Brian Shea), BNY Mellon (Robert Kelly), Fidelity (Ned Johnson & daughter Abby Johnson), Putnam (Bob Reynolds &/or Jeff Carney), Vanguard (John Bogle or Bill McNabb)....etc, etc. So they'll all messed up because they're rich and they have huge homes and nice big vacation homes all over the US and world? So obviously you don't do any business with ANY of the above named firms, or ANY financial services companies because they or their executives own nice homes & or nice vacation homes &/or nice cars? Right? Totally flawed thought process. But nice try. I don't believe or buy the "they loan money to other funds" tactic. For some reason REIT WRECKS and other industry haters just like to find ANYTHING to twist & turn into a negative thing. SO WHAT if they do loan money. I believe most REIT's have that in their prospectus that they can make loans? Not sure on that, but I really don't care what they do as long as it's legal & they are making shareholders money.

Some good points here. I have a difficult time accepting FactRight reports as I have already read the PPM for any investment I consider and I don"t need the PPM regurgitated in color. Although I have reviewed several programs on ARC's platform that I approve of, my due diligence has never been enhanced by any of FactRight's reporting. It's obviously "pay to play" accompanied by a PPM "copy and paste" job with little useful analysis. Folks, do your own due diligence! Read everything you can get your hands on, ask all the questions you can think of and don't take any marketing materials or advisors recommendations at face value.

I have had personal experience with Fact Right. My experience is that they are not thorough and the industry as a whole is fairly incestuous. I would advise to be leary of any report with a Fact Right stamp of approval on it.